Annexin: Continued focus on RVO study

Research Update

2024-04-15

12:45

Redeye returns with an update following Annexin’s Q1 report, which offered no surprises. We reiterate our positive stance and valuation for now.

Fredrik Thor

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No surprises in the report

Ongoing rights issue

RVO trial closing in

The company reiterates its stance that it expects the ongoing phase II study to be finalized by mid-2024 and has previously stated it will finalize the study report and detailed analyses by Q3. We will conduct a more thorough review of ANXV's prospects in RVO following the top-line readout later this year, which we see as a significant catalyst for the share, and for now reiterate our base case of SEK1.2 per share.

Key financials

SEKm	2022	2023	2024e	2025e
Revenues	0.00	0.00	0.00	39.6
EBITDA	-40.7	-44.2	-52.1	-16.6
EBIT	-40.7	-44.2	-52.1	-16.6
Net Income	-40.7	-44.1	-52.1	-16.6

Announced a rights issue

A few weeks ago, the company announced a rights issue of up to SEK45m before issue costs. The rights issue is guaranteed to 90.6% through subscription commitments from existing shareholders, including management and board (66.1%), and guarantees (24.5%). The subscription price is set to SEK0.25 per share, i.e. 2% below the closing price the day before – which we think is impressive and sends a strong signal that the majority owners and management/board have conviction in the case, including the upcoming readout in the phase II RVO readout. In relation to the Q4 report, we learned that the company had secured a loan facility from a few significant shareholders of up to SEK15m. In the Q1 report, we learn that Annexin still has not used it. Given that the proposed rights issue will conclude in late May, we expect the company to call off parts of the loan and repay through offsetting issue proceeds. In relation to the announced issue, Annexin stated that it expects that proceeds from a fully subscribed rights issue are ““intended to cover the company’s working capital needs until the end of 2024, assuming full subscription”.

Report as expected - Pivotal year ahead for Annexin

Annexin’s Q1 report was in line with expectations and offered few surprises, as the critical news flow since our Q4 update in February mainly was the announcement of the rights issue. Operating expenses amounted to SEK-12.5m, which aligned with our expectations. The cash position amounted to SEK7.8m, i.e., excluding the outstanding loan facility of SEK15m. We pencil in the ongoing rights issue guaranteed to 90%+ and also assume a small injection in late 2024/early 2025, to have a runway for 12 months included in our model. Before the announcement, we had already penciled in a rights issue for 2024 (SEK55m) and thus only make minor modifications. We continue to see optionality in non-dilutive funding, such as a licensing agreement for either RVO or oncology, and the CEO's letter hints at the potential for a global deal. However, the company is also considering regional agreements. The company mentions that it is working with experienced advisors and is optimistic about the prospects of a deal. We have mainly focused on a regional deal (Japan) in our model, which we expect in 2025, but not that there are a lot of possibilities, especially if the complete phase II results are in line with the readouts so far. The company reiterates its stance that it expects the ongoing phase II study to be finalized by mid-2024 and has previously stated it will finalize the study report and detailed analyses by Q3. We also think that it is interesting that two new board members have been proposed, Jan Nilsson (proposed chairman) and Mikael Lönn (largest owner), which could indicate a more business-oriented focus for the board as we advance.

Source: Annexin (historical financials); Redeye Research (estimates)

Reiterate our valuation

As previously mentioned, we tweaked our dilution assumptions somewhat following the announcement of the rights issue but reiterated our base case of SEK1.2 per share. We will conduct a more thorough review of ANXV's prospects in RVO following the top-line readout later this year, which we see as a significant catalyst for the share and the prospects of a licensing agreement.

Sum-of-the-parts Valuation

Investment thesis

Case

Optionality in a protein

We continue to see a significant upside Annexin as we argue that the share price in Annexin has failed to account for the substantial and strong pipeline progress in the lead indication RVO with drug candidate ANXV. We are also encouraged by the company’s increased ambitions in additional indications – most notably cancer. We expect 2024 to be a busy time, including additional trial data from the phase II study in RVO, which could de-risk the asset further. We also expect further progress in the oncology expansion.

Evidence

Broad therapeutic potential and increased interest in the field

ANXV is a biologics candidate based on recombinant human Annexin A5. This is a highly conserved, endogenous protein present in all human cells but abundant in endothelial cells and thrombocytes. An investment in Annexin Pharmaceuticals is a bet on ANXVs potentially wide use as therapy; for example in vascular, cardiovascular, oncology, viral, and hematology. We see an increased body of literature highlighting its potential role as a therapeutic. Only in recent years we acknowledge external papers in different therapy areas, including oncology, where Annexin A5 has been suggested as an immune checkpoint inhibitor. Annexin's lead indication at this stage is retinal vein occlusion (RVO), a vascular disorder of the retina and a common cause of vision loss - a huge market (USD 20 billion), where no treatment today can address the disease’s underlying cause, which ANXV aims to do.

Supportive Analysis

In the apoptosis process, Annexin A5 has demonstrated unique characteristics: • Immediate ability to repair cell rupture • Anti-thrombotic and acts as a protective shield • Long-term acts anti-inflammatory Annexin A5 has been widely used in the clinic as a diagnostic biomarker. Thanks to its strong affinity for PS (“phosphatidylserine”), researchers have better understand apoptosis at a molecular level when Annexin A5 has been attached to a radionuclide or a fluorescent dye. In the last 10-15 years, we also acknowledge an increasing appreciation for Annexin A5’s therapeutic properties. In this context, the co-founders of Annexin Pharmaceuticals have had an incremental role, and it’s their research that Annexin Pharmaceuticals stem from. The company develops ANXV to assess its therapeutic properties, with the hypothesis to supplement ANXV in subacute stages by acting as a missile to its disease target. By September 2021, Annexin reported its anticipated phase I results. The successful study assessed safety and tolerability through intravenous administration and single- and multiple ascending doses (SAD/MAD). This important milestone was in our view overlooked by the market and opens up for phase II studies in other indications.

Challenge

Strategy decisions on indications

Considering the broad potential with ANXV, the other side of the coin is that there is no clear path (and possibly many of them) to success. It will require both skillfulness and timing to bring this asset to market, including balancing the financial constraints with taking advantage of the potential in multiple indications.

Challenge

Additional funding required

We estimate that Annexin needs additional funding to take lead project ANXV in RVO beyond the ongoing phase IIa trial, although the amount also depends on whether Annexin will outlicense ANXV or continue further with the in-house development. Annexin has a history of efficient capital injections, including smaller directed issues/loans from major shareholders before major events (so that the company can raise sufficient cash when it needs to). We think that this has contributed to a more stable share price and valuation.

Valuation

SOTP Suggests Upside

We value Annexin using a risk-adjusted sum-of-the-parts (SOTP) analysis. At current levels, we argue that the market severely underestimates recent data that de-risk ANXV as a drug, including in lead indication RVO (“Retinal Vein Occlusion”). We think that the gap between our base case and today’s levels will be closed once we get further information on financing and receive additional data from the ongoing phase II trial.

Quality Rating

People: 3

Annexin benefits from an experienced management team and a robust ownership structure compared to its immediate peers, consistently receiving financial support. The company has world leading know-how and experience when it comes to Annexin A5 globally. To enhance its performance further, we look forward to seeing Annexin execute its strategy further, particularly through securing a licensing deal. We'll reevaluate the rating post the annual meeting when the board structure may have been changed.

Business: 3

Annexin has not yet generated any revenues for its products and has no established position on the market. However, if the development and commercialization of ANXV would be successful the company can enjoy protective barriers around the company's operations, supported by patents know how around Annexin A5.

Financials: 0

Annexin is a pre-revenue biotech company that has not historically achieved profitability, and we anticipate that additional capital injections will be needed.

Financials

Income statement
SEKm	2023	2024e	2025e
Revenues	0.00	0.00	39.6
Cost of Revenue	0.00	0.00	0.00
Operating Expenses	44.2	52.1	56.1
EBITDA	-44.2	-52.1	-16.6
Depreciation	0.00	0.00	0.00
Amortizations	0.00	0.00	0.00
EBIT	-44.2	-52.1	-16.6
Shares in Associates	0.00	0.00	0.00
Interest Expenses	-0.12	0.00	0.00
Net Financial Items	0.12	0.00	0.00
EBT	-44.1	-52.1	-16.6
Income Tax Expenses	0.00	0.00	0.00
Net Income	-44.1	-52.1	-16.6
Balance sheet
Assets
Non-current assets
SEKm	2023	2024e	2025e
Property, Plant and Equipment (Net)	1.2	1.2	1.2
Goodwill	0.00	0.00	0.00
Intangible Assets	0.37	0.37	0.37
Right-of-Use Assets	0.00	0.00	0.00
Other Non-Current Assets	0.31	0.31	0.31
Total Non-Current Assets	1.8	1.8	1.8
Current assets
SEKm	2023	2024e	2025e
Inventories	0.00	0.00	2.7
Accounts Receivable	0.87	0.00	6.5
Other Current Assets	2.6	0.00	3.2
Cash Equivalents	21.4	18.4	19.5
Total Current Assets	24.9	18.4	31.8
Total Assets	26.8	20.3	33.7
Equity and Liabilities
Equity
SEKm	2023	2024e	2025e
Non Controlling Interest	0.00	0.00	0.00
Shareholder's Equity	18.8	16.7	15.1
Non-current liabilities
SEKm	2023	2024e	2025e
Long Term Debt	0.00	0.00	0.00
Long Term Lease Liabilities	0.00	0.00	0.00
Other Long Term Liabilities	0.00	0.00	0.00
Total Non-Current Liabilities	0.00	0.00	0.00
Current liabilities
SEKm	2023	2024e	2025e
Short Term Debt	0.00	0.00	0.00
Short Term Lease Liabilities	0.00	0.00	0.00
Accounts Payable	4.3	0.00	13.0
Other Current Liabilities	3.6	3.6	5.3
Total Current Liabilities	7.9	3.6	18.3
Total Liabilities and Equity	26.8	20.3	33.4

Rating definitions

The team

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Contents

Investment thesis

Quality Rating

Financials

Rating definitions

The team

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